American Automobile Insurance Co. v. First Mercury Insurance Co.

United States District Court, D. New Mexico

April 19, 2018

AMERICAN AUTOMOBILE INSURANCE COMPANY, Plaintiff/Counterdefendant,v.FIRST MERCURY INSURANCE COMPANY, Defendant/Counterclaimant, and XL INSURANCE COMPANY LIMITED and HCC INTERNATIONAL INSURANCE COMPANY PLC, Joined Plaintiffs on Counterclaim.

MEMORANDUM OPINION AND ORDER

This
matter comes before the Court upon “American Automobile
Insurance Company's Opposed Motion for Judgment on the
Pleadings as to First Mercury's Counterclaim or for
Partial Summary Judgment as to First Mercury's
Counterclaim” (Motion), filed July 28, 2017. (Doc.
175). Plaintiff/Counterdefendant American Automobile
Insurance Company's (AAIC) has presented evidence outside
the pleadings. Therefore, the Court will analyze the Motion
as a motion for partial summary judgment. See SEC v.
Wolfson,539 F.3d 1249, 1264 (10th Cir.2008) (stating
“when a motion for judgment on the pleadings is filed
and ‘matters outside the pleadings are presented to and
not excluded by the court, the motion must be
treated as one for summary judgment and disposed of as
provided in Rule 56'” (quoting Fed.R.Civ.P.
12(d))). Defendant/Counterclaimant First Mercury Insurance
Company (First Mercury) and Joined Plaintiffs on
Counterclaim, XL Insurance Company Limited and HCC
International Insurance Company, PLC, (collectively,
Counterclaimants) filed a response on August 24, 2017, and
AAIC filed a reply on September 25, 2017. (Docs. 177 and
178). Having reviewed the Motion, the relevant evidence, and
the briefing, the Court grants the Motion, in part, as
described below.

This
case involves an insurance dispute arising from a traffic
accident in which Monte Lyons, a Standard E&S, LLC
(Standard) truck driver, caused the death of Kevin Udy. (Doc.
162) at 2. Lyons was driving a truck and trailer leased to
Standard from Zia Transport, Inc. (Zia). Id.
Bergstein Enterprises, Ltd. (Bergstein) operated both
Standard and Zia. Id.

a.
The Insurance Policies

Standard had an AAIC insurance policy (Standard Policy) which
included Lyons, Zia, and Bergstein as additional insureds
under its omnibus clause. (Doc. 4) at ¶ 7. That
insurance policy had “primary liability coverage up to
$1 million” per accident. (Doc. 162) at 3.
This policy also covered punitive damages.[2] In addition to
the Standard Policy, Standard had an excess insurance policy
issued by First Mercury with a limit of $4 million (Standard
Excess Policy). Id. at 5. The Standard Policy served
as the underlying policy for the Standard Excess Policy.
Id.

Furthermore,
AAIC issued Bergstein an insurance policy with a $1 million
limit. Id. Because the tractor and trailer driven by
Lyons was not listed on the Bergstein Policy, the policy
apparently covers the tractor and trailer as only excess
insurance. Id.

b.
The Underlying State Lawsuit

In
March 2011, the Estate of Kevin Udy and Udy family members
(collectively, the Udys) sued Standard, Zia, Bergstein, and
Lyons in state court for wrongful death, loss of consortium,
personal injury, and punitive damages. (Doc. 117-1). AAIC
provided a defense to all four defendants in that case while
“First Mercury took the lead in settlement negotiations
with the Udy plaintiffs.” (Doc. 4) at ¶ 15; (Doc.
162) at 6. In doing so, First Mercury offered $2, 250, 000 to
settle the case. (Doc. 116-3) at 22. First Mercury
specifically offered the $1 million limit under the AAIC
Standard Policy and then, presumably, offered $1, 250, 000
under its Standard Excess Policy. (Doc. 162) at 6.
No funds from the Bergstein Policy were offered during the
pretrial settlement negotiations. Id. In fact, First
Mercury contends that it did not know about the Bergstein
Policy at that time. (Doc. 13) at 9, ¶ 18.

The
Udys countered by offering to settle the case for $3.5
million, well within the limits of the Standard Policy and
the Standard Excess Policy. (Doc. 116-3) at 20-23. First
Mercury apparently did not respond to that counteroffer, so
the Udys withdrew the counteroffer and terminated settlement
negotiations. Id. at 22-23.

In
March 2013, a jury trial tried the state case and
“judgment was entered against Standard, Zia, and
Bergstein for a total of $58 million….” (Doc.
162) at 7. Relevant to this Motion, the jury awarded $2.3
million in compensatory damages against Standard and $28
million against Standard in punitive damages. (Doc. 175-2) at
6-8. The jury also awarded $1, 035, 000 in compensatory
damages against Zia and $5 million against Zia in punitive
damages. Id.

The
case subsequently settled for $43 million, which was paid as
follows: $1 million under the Standard Policy; $4 million
under the Standard Excess Policy; $1 million under the
Bergstein Policy; $4 million under an excess policy to the
Bergstein Policy, which is not at issue here; and $33 million
by First Mercury and its liability insurers. (Doc. 162) at 7.

c.
Post-Settlement Actions

On May
9, 2013, AAIC sent a letter to the Udy defendants reserving
its rights under the Standard Policy and the Bergstein Policy
while it pursues relief in federal court. (Doc. 4-6). That
same day, AAIC filed this lawsuit against First Mercury,
Standard, Zia, Bergstein, Lyons, and the Udy plaintiffs for
declaratory judgment, bad faith, and equitable subrogation.
(Doc. 1). AAIC then amended the complaint in July 2013 to
bring its claims against only First Mercury, Standard, Zia,
and Bergstein. (Doc. 4). The Court since has dismissed the
claims against Standard, Zia, and Bergstein, leaving First
Mercury as the remaining Defendant. (Doc. 33).

In
October 2013 First Mercury filed counterclaims against AAIC.
(Doc. 13) at 10-11. The Court subsequently allowed XL
Insurance Company Limited and HCC International Insurance
Company PLC to join as plaintiffs on First Mercury's
counterclaims. (Doc. 143).

In
February 2014 Standard, Zia, Bergstein, and Pieter
Bergstein[3] (collectively, Bergstein entities) entered
into an Indemnification Agreement, Assignment and Release
with First Mercury. (Doc. 175-2) at 11. First Mercury agreed,
inter alia, to fully indemnify the Bergstein
entities for the judgment entered against them while the
Bergstein entities agreed to release First Mercury from
claims related to the Udy lawsuit and its judgment.
Id. at 13-14. The Bergstein entities also assigned
to First Mercury all rights and claims they may have against
AAIC. Id. at 14-15.

AAIC contends in its Amended Complaint that [d]espite
multiple opportunities to settle within the underlying $1
million policy limit plus First Mercury's $4 million
excess policy limit, and despite the warnings of the
likelihood of an excess verdict, Defendant First Mercury
failed to settle the claims of the Udy Estate and the Udys
within the policy limits of its Standard … Excess
Policy.

(Doc. 4) at ¶ 17. As result of this alleged conduct,
AAIC brings declaratory judgment, bad faith, and equitable
subrogation claims against First Mercury. “AAIC seeks
$1 million, which represents the amount of the AAIC Bergstein
Policy that AAIC paid as a result of First Mercury's
failure to settle the Udy Action within the limits of the
AAIC Standard Policy and” the Standard Excess Policy.
(Doc. 162) at 7.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.
The ...

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